Bombay High Court: Vehicular Toll is Tax and Not a Mere Contractual Debt between Collection Company and MCD

Bombay High Court: Vehicular Toll is Tax and Not a Mere Contractual Debt between Collection Company and MCD

The Bombay High Court while adjudicating a writ petition dispute regarding Municipal Corporation of Delhi (MCD) (formerly known as South Delhi Municipal Corporation) recovery of dues from the MEP Infrastructure Developers Ltd. (MEPIDL) observed that, vehicular toll is a tax and not merely contractual debt between the collection company and the civic body.

MCD is a statutory body. Its governing statute is the Delhi Municipal Corporation Act, 1957 ("the DMC Act"). Amongst its various functions, the MCD collects toll tax from commercial vehicles entering Delhi from as many as 1024 toll gates or entry points around Delhi. This is said to be one of the principal sources of revenue for all municipal corporations of Delhi.

The MCD stated that it does not itself have in-house manpower to collect toll tax at these various collection points. It cannot monitor the quite considerable daily cash collections. The work is thus contracted out on a lumpsum basis to various third parties. This is done under the Delhi Municipal (Toll Tax) Bye-Laws 2007, which are to be read with Section 113 of the DMC Act.

According to the MCD, MEPIDL, a Mumbai-based enterprise, made a bid for collection of toll tax from all MCD toll gates/check posts at the many entry points into Delhi. The parties executed a contract on 28th September 2017. The contract required MEPIDL to make a specified weekly remittance to the MCD. This was expressed also in terms of an annual remittance and was subject to a periodic enhancement. Other remittances were also to be made. According to MCD, an amount of about Rs. 100 crore was to be paid monthly towards toll tax.

MCD's case is that MEPIDL failed to make these remittances. A large amount fell due. The contract itself provided for a penalty. MCD imposed that penalty.

MEPIDL has no assets in Delhi. Hence, MCD requested the local authorities to issue notice of attachment of MEPIDL's movable and immovable assets within the jurisdiction of the Bombay HC. The Kalyan Janata Sahakari Bank Ltd., instead of implementing Tehsildar's notice to freeze MEPIDL's implementing Tehsildar's notice to freeze MEPIDL's account, issued it a show-cause notice.

MEPIDL challenged the distress warrants and attachment notices while MCD challenged the action of the Bank.

The Senior Advocate Venkatesh Dhond and Advocate Rashmin Khandekar appearing for MEPIDL argued that MCD's claim is not a tax but it is simply a contractual debt alleged to be payable under a signed contract. Additionally, they contended that the distress warrant must be confined to property which is in Delhi.

The two-judges bench comprising of Justices G.S. Patel and S.G. Dige found the actions of the bank "indefensible" and directed the bank to recall the show-cause notice. The Court also restrained the bank from issuing any communication to MEPIDL that may cause it to remove its money from the account.

"The bank has no authority in law to invite suggestions and objections from a defaulter against whom there is a Revenue Recovery Certificate. Once the Tahsildar has issued a notice to freeze the account, the bank must comply, and it is then for the defaulter to apply to a Court or an authority to have that account released from freezing," the court held.

Section 156(1) of the DMC Act provides the mode for recovery of tax in case of default via distress and sale of movable property or attachment and sale of immovable property of the defaulter. Section 157(1) provides that MCD may distrain any property of the defaulter described in this section in any place in Delhi subject to certain exceptions.

"Section 157 is an empowering provision. It only says that it is lawful for an MCD employee who is in receipt of a warrant to distrain any movable property or any standing timber growing crops or grass subject to certain conditions exceptions and exemptions. It is not possible we think, to read Section 157 as constraining the ambit, amplitude and operation of Section 156 which does not contain any such geographical limitation. Importantly, the Eighth Schedule referred to in Section 156 also does not provide for any such geographical restriction or limitation," added the bench.

The bench was of the view that if MEPIDL's submission is accepted, then it would mean that MCD can never engage a contractor who has no property in Delhi and if it does engage such a contractor, the contractor would be immune to recovery. The court remarked this interpretation of Section 156 "absurd and untenable."

The bench refused to accept the submission forwarded by the Counsel for MEPIDL. The bench observed, "MEPIDL was collecting and remitting toll. The question, therefore, is not whether MEPIDL was doing so under contract but what is it that it was collecting and remitting because it is this amount that is sought to be recovered. Toll is undoubtedly a tax. It is so defined. The statute so says. Even the Bye-laws make this abundantly clear, and there is no question of limiting the recovery to a contractual debt."

Further, the Court was of the view that it is only a tax and not land revenue and cannot be recovered as land revenue, "Section 455 of DMC Act has two operative words. First, it speaks of a mode. Then it speaks of 'certain dues.' Section 455 is a sort of residuary provision. It applies in any case not otherwise provided in the DMC Act or any Bye-law. The ambit of Section 455 is to cover any charge, cost, expenses, fees, rates, rent or any other account. Thus, even this goes against Mr Dhond because any claim would, under Section 455, be 'a certain due' including what Mr Dhond says is a mere contractual claim. This too can be recovered as an arrear of tax. That takes us directly to Section 156. Now that Section makes it abundantly clear that the tax due can be recovered under an Eighth Schedule warrant by distress and sale of movable property or the attachment and sale of immovable property of the defaulter. There is no geographical restriction in Section 156 limiting the action to assets in Delhi."

The Court opined that section 455 is a residuary provision applicable in any case not otherwise covered in the Act or Bye Laws. Thus, even if the claim were merely a contractual claim as contended by MEPIDL, it would still come under section 455 as a 'certain due', the court held.

The Court further concurred with Senior Advocate Mr. Gaurav Joshi who placed reliance on the decision Supreme Court in Jalkal Vibhag Nagar Nigam & Ors vs. Pradeshiya Industrial and Investment Corporation, which held the basic constitutional distinction between a 'fee' and a 'tax.'

The bench accepted the submission forwarded by Mr. Joshi that "merely because it is collected under a contract will not change the nature of the levy, or make it something other than a tax. MEPIDL was, plain and simple, MCD's tax collector. The amount in MEPIDL's hands was tax by statute. It remained a tax, and this tax had to be remitted to the MCD. It could not become 'consideration' or 'damages or a contractual debt of any other kind. This was always tax due to the MCD. It was due from the drivers/owners of commercial vehicles entering Delhi, and it was payable to the MCD. MEPIDL was only 'harvesting' the tax collections."

The Court concluded that there was no apparent reason, to exercise its discretion at all in regard to the several distress warrants that had been issued. The entire trajectory of this is to be deprecated. "When a principle challenge against the termination fails and while an appeal is pending, one distress warrant is challenged in Delhi only to be allegedly later withdrawn and other distress warrants are now brought before this Court," stated the Court while dismissing the MEPIDL petition.